United States District Court, N.D. California
ORDER RE SANCTIONS AND SUMMARY JUDGMENT ON
COUNTERCLAIMS RE: DKT. NOS. 113-12, 141
JAMES
DONATO United States District Judge
BACKGROUND
This
order resolves the motion for summary judgment by plaintiff
Johnstech International Corporation (“Johnstech”)
on counterclaims by defendant JF Microtechnology SDN BHD
(“JFM”) in this patent suit. Dkt. Nos. 113-12
(under seal), 128 (redacted). It also resolves a related
sanctions motion brought by Johnstech. Dkt. No. 141. Summary
judgment is granted on the challenged claims and an
evidentiary sanction is imposed against JFM.
JFM
brought five counterclaims in response to Johnstech’s
patent suit. Dkt. No. 70. The first counterclaim seeks
declaratory judgment of invalidity and noninfringement of the
patent in suit, and is not in issue here. The summary
judgment motion deals only with the second through fifth
counterclaims, which arise out an August 2014 letter that
Johnstech sent “to multiple current and prospective
customers of JFM” a few months after this litigation
began. Id. at 7. The counterclaims challenge three
statements in the letter:
[1.] [O]ur R&D efforts have been granted several hundred
patents[;]
[2.] Patents . . . protect buyers from being victimized by
low-quality copies or exposed to substantial legal
liabilities[;]
[3.] We were further dismayed to read language in the JF
Technology Terms and Conditions of Sale that the purchaser of
their products indemnifies JF Technology against possible
patent infringement litigation!
See Dkt. No. 70 at 7-8; see also Dkt. No.
70-1.
JFM
contends that these statements amount to defamation, false
advertising under the Lanham Act (15 U.S.C. § 1125),
unfair business practices under California Bus. & Prof.
Code § 17200, and intentional interference with
prospective economic advantage. Johnstech moves for summary
judgment on JFM’s second through fifth counterclaims on
merits grounds particular to each claim, on immunity under
the Noerr-Pennington doctrine, and for lack of
damages evidence. Dkt. Nos. 113-12, 128.
DISCUSSION
I.
SANCTIONS MOTION
JFM did
not spell out the amount or basis of its purported damages
for the counterclaims until it gave Johnstech a report by a
retained certified public accountant, James Pampinella, after
the close of fact discovery. Dkt. No. 113-12 at 14; Dkt. No.
113-17. This timing raises two serious concerns. JFM should
have made, early in the case, an initial disclosure with a
“computation of each category of damages” along
with the “documents or other evidentiary
material” on which the computations were based, and
other “materials bearing on the nature and extent of
injuries suffered.” Fed.R.Civ.P. 26(a)(1)(A)(iii).
While the courts have declined to take a rigid approach to
the specificity required for initial disclosures about
damages, it has been abundantly clear for some time that at
least some facts and figures, however tentative, need to be
provided; simply saying “you owe me” is not
enough. See, e.g., City and County of San Francisco v.
Tutor-Saliba Corp., 218 F.R.D. 219, 221 (N.D. Cal.
2003). And yet, all JFM said in its initial disclosures for
damages was just that. Even as late as its final supplemental
disclosures, which it served just before the close of
discovery, JFM’s “computations” of special
damages consisted of nothing more than cursory and unadorned
statements like “[a]ll monies lost . . . as a result of
business lost by JF Microtechnology as the result of the
false letter” and “[a]ll profits earned as a
result of the unlawful diversion of business” from JFM
to Johnstech. Dkt. No. 142-2 at 7. The
“computation” for general damages managed to be
even less informative: “[m]onies to compensate”
for “shame, mortification and hurt feelings resulting
from the false letter.” Id. Needless to say,
JFM did not provide or even identify any evidence or
documentation in support of these hazy generalizations.
In
effect, JFM never disclosed at any time in the litigation a
useful valuation of its counterclaim damages as Rule 26(a)
requires. That is an unacceptable default. The federal rules
treat initial disclosures as automatic and time-sensitive.
This Court’s Standing Order for Civil Cases, which
governs this litigation, expressly incorporates these
requirements. The sanction for failing to adhere to Rule
26(a) is exclusion of improperly disclosed evidence and
materials. Specifically, Rule 37 provides a
“self-executing, automatic sanction” of exclusion
“to provide a strong inducement for disclosure of
material.” Hoffman v. Constr. Protective Servs.,
Inc., 541 F.3d 1175, 1180 (9th Cir. 2008) (internal
citation omitted). Exclusion is appropriate “unless the
failure to disclose was substantially justified or
harmless.” Id. at 1179 (citation omitted). Bad
faith or willfulness is not a required finding and the
exclusion sanction will apply “even when a
litigant’s entire cause of action” will be
precluded. Id. at 1180 (internal quotation omitted).
A
fairly compelling case can be made to strike JFM’s
counterclaim damages on Rule 26(a) grounds alone. But JFM has
dug itself an even deeper hole. When it finally specified its
alleged damages, JFM relied on evidence that it had failed to
provide in discovery. As Johnstech points out, all of
JFM’s damages demands flow exclusively from overseas
sales data that JFM had withheld despite being called for in
a fair reading of Johnstech’s discovery requests. This
problem surfaced during a hearing on another issue, and the
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